Pricing Partisan Identity: Evidence from School Bonds 

Abstract

We study whether security prices respond when the institutions they fund become partisan. We use the staggered adoption of partisan school board elections across North Carolina counties between 2014 and 2024. School bonds in adopting counties are issued at lower yields than school bonds in counties that remain nonpartisan, generating $33 to $45 million in interest savings on post-adoption issuances. North Carolina provides an opportunity to test the mechanism behind this effect. Unlike in most states, its school bonds are backed by the same full-faith-and-credit pledge and county taxing authority as other general obligation bonds the county issues. If the lower yields reflect revised beliefs about county fiscal fundamentals, the effect should appear across all of a county's GO bonds. Instead, non-school bonds issued in adopting counties show no change in offering yields. Because one taxing authority backs both, this within-issuer differential is inconsistent with revised beliefs about credit risk and instead provides novel evidence of the nonpecuniary utility investors derive from holding securities tied to partisan governance. School bond issuance volume does not contract following adoption, ruling out a supply-side explanation.

Keywords: Municipal Bonds, Political Polarization, Partisan Utility, Cost of Capital

JEL Classification: D72, G12, G14, G41, H74, I22